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Realising that China’s pressure on funding by Asian Development Bank and the World Bank was hurting projects in Arunachal Pradesh, India is pursuing other countries to implement long-pending projects in the state.

The Department of Economic Affairs is now looking at Japan and the European countries for loans after ADB declined finance to a third project in Arunachal due to China’s opposition. Beijing considers the northeastern state a “disputed territory” and argues that multilateral development banks cannot fund projects in disputed areas.

Sources said the shift to tap bilateral donors for the projects was suggested by Minister for Urban Development Kamal Nath, who advised last month that Japan International Cooperation Agency or Germany’s state-owned Kreditanstalt für Wiederaufbau be approa-ched. Finance Minister P Chidambaram seconded Kamal Nath’s idea and asked the DEA to reach out to these countries.

India’s move is a marked departure from the Finance Ministry’s statement in March 2010 that New Delhi would continue to present projects in the state for funding by multilateral banks, and that there was “no change in policy regarding multilaterally funded projects in various sectors or states”, including projects in Arunachal. Sources said that the immediate provocation was China’s objection to ADB funding for infrastructure development of Arunachal capital Itanagar under the ongoing North Eastern Region Urban Development Programme.

The first phase of NERUDP, approved in June 2009, was limited to the capital cities of the five Northeastern states of Tripura, Mizoram, Sikkim, Meghalaya and Nagaland, involving a cost of Rs 1,300 crore to improve their water supply, sewerage and sanitation, and solid waste management. The second phase was to include Assam, Arunachal and Manipur. But after the Arunachal government submitted its Rs 1,213-crore proposal, it was told in November 2010 that ADB funding would be restricted to Assam and “Manipur and Arunachal could be financed under some other schemes”.

The issue was taken up by Tuki last November with the prime minister, who assured that “projects originally to be funded by the ADB in Arunachal would now be considered for funding from other sources as a compensatory measure for the border state”.

Restrictions over ADB loans for Arunachal projects actually began in March 2009 after China tried to block a $2.9-billion Country Partnership Strategy, which included $60 million for a flood